Many thanks mikeBeato for putting in the hard work. I uninstalled overdrive and and it just worked (didn't need to delete the file in extensions).
The swipe gestures are cool in the browser, just wish it had a middle button.
I have had a very similar problem but it crashed my machine.
MacBook Pro Mac OSX 10.5.8
Got my magic mouse turned on it connected - great! But at this point no extra bits and nothing special in the mouse preferences. Went to website downloaded the magic mouse updater installed restarted. Magic...